Monthly Archives: November 2015

Blackstone Group LP has part – exited from its PE investment in project management consultancy Synergy Property Development Services Pvt Ltd. Synergy is Blackstone’s first investment in India. Blackstone has aggressively invested in commercial real estate and owns approximately 30 million sq ft of assets across major cities in the country.

Blackstone has sold 35% stake in Synergy, but the deal value remains undisclosed.
Blackstone Real Estate Partner is an affiliate of New York based PE giant has invested Rs 56 crore in the company in 2008. Synergy on the other hand delivered 100 million sq ft of projects expanding operations to 10 countries.
Blackstone, along with Singapore’s Sovereign wealth fund GIC, is a frontrunner in discussions for the sale of a 40 per cent stake by DLF promoters in the rental arm of the company.

Let’s continue focus on PE investments in India, tracking progress. Experts at IKIA feels that the increase in PE investments in real estate is because global investors have put India back on their radar. The reasons – support from the Government and the maturity of real estate market.

Large institutional investors like GIC, Goldman Sachs and Warburg Pincus are trying to forge relationships with large developers who have a proven track record in different regions through entity or asset-level transactions. Until recently, Blackstone was the only serious bidder for large size realty transactions.

Why these PE investors have a strong hold, is due to their ability to invest long term – as long as 10 years, and the ability to ride short term volatility of the market, reaping benefits.

More recently, others such as Goldman Sachs, Brookfield, Piramal Fund Management and Warburg Pincus besides GIC have entered the arena. However, GIC has emerged as the top institutional investor in real estate.

India is looking attractive to global investors from the real estate perspective because valuations have leveled out, a sign of market maturing. And when valuations get institutionalized they are much easier to understand.

Singapore’s sovereign wealth fund GIC Pvt Ltd, has quietly built a significant presence in India with small stakes in large public listed firms. The GIC has made much of the investments in India as a portfolio investor by purchasing shares through the stock market. The company has also signed private equity style deals in India and has committed close to $ 1 billion in the last year.

The company has been aggressively investing in real estate apart from pharmaceutical research, e-commerce, renewable energy and microfinance. GIC is now the top institutional investor in real estate sector. The USP is the understanding of the market due to long-term patient capital investment and the ability to sign big cheques.

It recently sealed a deal with India’s biggest listed developer DLF Ltd to invest Rs 1,990 crore across two projects in central Delhi, acquired roughly 64 per cent of listed Mumbai IT park firm Nirlon Ltd, and, in a small transaction, backed residential projects of Chennai-based developer Jain Housing and Construction.
It has forged a Rs 1,500 crore venture with Bangalore-based Brigade Group to jointly develop residential projects in southern cities. It also struck a joint venture agreement with Vatika Group to develop two projects.

Apart from sealing direct deals with developers, it has also backed the real estate-focused non-banking finance company formed by private equity giant KKR.

GIC has seen a variety of deals across commercial and residential segments, though most of its assets are residential. These range from platform deals and entity-level deals to transactions involving special purpose vehicles (SPVs).

Platform deals refer to transactions where an investor joins hands with a developer to create a string of assets while entity-level deals, which are making a comeback, involve the holding company of the developer bringing in an equity investor. SPV-level transactions involve an investor backing a particular asset.

Depending on the risk-return profile, they are able to safely move from one strategy to another. GIC has increased its portfolio of global real estate assets from 7% to 13%. The strategic advantage is that real estate offers the opportunity for diversification to GIC together with good returns.

Chennai has outperformed other locations in the country, in the real estate sector, and has not slowed down yet. Casa Grande has developed projects over 3 million sq ft to date across 64 projects, with more than six million sq ft under construction.

The returns that Avenue Venture reaped were 1.62 times on the investment with an internal rate of return (IRR) of 39 per cent within 18 months. The PE fund has invested roughly Rs 28.14 crore in the project in May 2013 at SPV level and has had a return of Rs 40.1 crore.

This was the firms first investment from the maiden fund raised. It is now focused on raising its second fund with a target corpus of Rs 400 crore apart from clocking exits.

The total exposure of the fund is roughly Rs 100 crore in three projects of Casa Grande. It had previously exited its first investment which was also sealed in 2013 for Rs 24.8 crore in a mid segment residential project located in Thoraipakkam.

The third and latest deal was sealed last year with a Rs 25 crore investment in a project in Padur in OMR area of Chennai. For Avenue Venture, this marks the 4th exit from the first fund of the firm.

In March this year, it exited its two-year-old investment in a project (Marq) of Singapore-headquartered realtor Assetz Property with an internal rate of return (IRR) of 33 per cent and a multiple of 1.73 times.

Earlier in November 2013, it exited its investment in Assetz Property’s another project in Bangalore with an IRR of 62 per cent and a multiple of 1.51x.

The fund takes the equity route to seal deals and commits capital in the range of Rs 30-90 crore in projects with turnaround tenure of two-five years. It is one of a few players to have continued doing equity deals when other PE funds switched to debt or structured debt. It has so far invested Rs 285 crore across 10 investments with two re-investments and created exits across three projects.

≈ Comments Off on Housing Property Market sales rise in the last quarter

India’s property market is showing signs of improvement as sales in the top eight cities showed a growing 17 per cent year-on-year in the July-September quarter. Sales rose from 57.8 million sq ft a year during the last financial year, to 67.9 million sq ft.

The highest volume of sales was recorded in NCR (16.9 million sq ft) followed by Bangalore (13.7 million sq ft). This is attributed to the festive season and one has to watch and wait to see if the momentum sustains, even after the freebies and the discounts vanish.

A decline in commodity prices has favored the developers, to bring down their cost of construction. This, in turn, arrested any unwarranted rise in price levels and kept the end users’ interest intact.

NCR, even after a rise in sales, still has the highest inventory of approximately 345.8 million sq ft, while the MMR has 217.2 million sq ft as of September 30. At the national level unsold stock remained at 1075.7 million sq ft. Inventory absorption was predicted to take 47 months, as against the healthy 8-12 month time frame.

Across markets, weighted average prices remained more or less stagnant with a mere 1 per cent appreciation on yearly and quarterly basis. Ahmedabad saw the highest rise in prices at 3 per cent annually while prices dropped by 4 per cent in Delhi-NCR.

≈ Comments Off on House of Hiranandani eyes distressed realty projects

Mumbai-based privately held real estate player House of Hiranandani, is coming out with a different strategy – acquiring distressed projects of developers – to expand its portfolio.

The company has its presence in Chennai, Bangalore and Hyderabad apart from Mumbai. The attempt to test the inorganic expansion strategy is aimed at capitalizing its cash-rich position.

The normal practice is to buy a land parcel in collaboration with a private equity fund or sign a joint venture with a developer on a revenue sharing model. But the new methodology is about looking at opportunities where projects have commenced and have been stalled due to lack of funding expertise.

The benefit has to do with land acquisition process – that is already taken care of and what the company brings to the table working capital without over leveraging themselves.

This strategy will be applied in Mumbai, Bangalore and Pune. Mumbai is the top market in terms of value of transactions and Delhi NCR by volume. Other markets have sustained only due to end user demand for reasonably priced projects. Developers have not launched projects in several quarters due to cash flow crunch.

≈ Comments Off on Private capital flow in real estate hits 7-year high

India has emerged as a favorable market among other economies, and the reason is the focused efforts by the government to strengthen the economy fuelling growth and revival. This has sparked interest among the investor community. Global investors are ready to tap the long term growth prospects of the real estate sector and hence capital flows into the sector has seen a 7 year high both in terms of number of transactions and the value of investments.

The investments flow has been favorable and if the momentum continues 2015 will be the biggest year for real estate private equity since 2008 (data set includes classic private equity investment as well as PE style debt deals by NBFCs).

The realty market attracted a whopping $2.5 billion across 58 deals in the first nine months of 2015. This is against $1.3 billion across 57 deals in the same period a year ago. The investment flow in the nine months of 2015 has already crossed the total deal flow in the whole of 2014, which stood at $2.1 billion through 81 deals.

The residential segments has seen majority of the deals, directed into restructuring and refinancing debts. The top deals sealed during the period include Singapore’s sovereign wealth fund GIC investing $300 million across two projects of DLF Ltd; Goldman Sachs creating a $250 joint investment platform for commercial realty with Nitesh Estates; Warburg Pincus and Goldman Sachs putting in $284 million and $150 million, respectively, in Piramal Realty at the entity level.

The point here is that in 2015, global investors have either come back to real estate after a long gap or added the sector to their investment strategy. Mega deals by marquee investors have taken the deal size higher during the year. If there are some big PE deals in the current quarter, 2015 will make a name in history as the year for biggest total quantum of money invested by private investors.

Maharashtra, Uttar Pradesh and Gujarat have attracted more than half of the total private equity investment in realty sector. The investments amounted to over 12 lakh crore from domestic and foreign bodies, says Assocham.

Maharashtra and Uttar Pradesh have remained ahead of Gujarat with 22% and 16% share in private investment. The three states together account for over half of the total investment in the country.

Within Gujarat, 92% share in total investment in real estate sector was done by private players. Of the total investment attracted by the real estate sector across India in FY15, private and public investors accounted for a share of about 85% and 15%, respectively.

In Q3 of 2015, MMR and NCR markets saw an 11 per cent and 7.5 per cent drop in sale of home units. Bangalore saw a 23 per cent decline in home sales.

Technology is only a tool in creating smart cities. What is important is responding to local culture and geography. What is needed is a holistic approach to integrate the socio economic frame work through architecture and design.

To do this one has to consider the availability of natural resources to the full extent. Natural light, solar panels, hybrid cooling systems – sustainability is the key word here that goes with cost efficiency.

Design should be inspired by nature and traditional architecture, flowing unobtrusively. Use of glass in building helps create conversations with the landscape, allowing collaborations without disconnect from the outside.

Holistic architecture combines the energy element into design. Since energy attracts energy, the challenge is to create buildings that attract the energy of the earth. Does this sound like going back to our roots? In Holistic Architecture – through design, one is directing energy to create within a structure the essence of joy and fulfillment.

Let us discuss some aspects of holistic architecture –

Finding the heart of the land, which is closest to the vortex of the earth, where energy of the earth is the strongest, is the first step. Everything that goes into developing the land should be in harmony with the energy of the land and that goes for the vegetation and landscaping as well, which needs to align with that which historically existed in the area.

Appearance of the structure should complement the surroundings. Inspiration on design can be derived from the surroundings. Geometric shapes that exist in nature are adopted to harmonize building designs with nature. For the traditional minded, the golden rectangle ratio is used in design to energize homes.

Shapes and designs that are a feature of earth’s design, produces harmonic energy and balance. And hence being green is also part of being holistic and responsible.

Proper utilization of energy helps uplift the person and his consciousness, as per ancient mystic sciences. There are other aspects that benefit from the positive energies. We shall keep you posted on those and more on holistic architecture on a future date…..

The last 2 years have seen realtors refinancing principal and interest obligations by leveraging the benefits out of their commercial portfolio. With construction costs overshooting the advances from customers, developers are caught in a debt spiral.

Debt obligation of 25 real estate companies, comprising 95% of the market capitalization of the sector, worth Rs 30,000 crore will now face high refinancing risk, according to a report published by CRISIL.

Traditionally, banks have been the primary source for funding and met about 90% of the sectors requirements. This has now reduced. The shortfall in funding will now be met by PE funds and NCDs (Non-Convertible Debentures). However, the high return expectations of these funding sources as compared to traditional bank lending will increase refinancing risks over the longer term unless demand picks up substantially.